Greetings, and welcome to the Burlington Stores Fourth Quarter Fiscal 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to turn the call over to David Glick. Please go ahead.

Thank you, operator, and good morning, everyone. We appreciate everyone’s participation in today’s conference call to discuss Burlington’s 2017 fourth fiscal quarter operating results. Our presenters today are Tom Kingsbury, our Chairman and Chief Executive Officer; and Marc Katz, Chief Financial Officer and Principal. Before I turn the call over to Tom, I would like to inform listeners that this call may not be transcribed, recorded or broadcast without our expressed permission. A replay of the call will be available until March 22, 2018. We take no responsibility for inaccuracies that may appear in transcripts of this call by third-parties. Our remarks and the Q&A that follows are copyrighted today by Burlington Stores. Remarks made on this call concerning future expectations, events, strategies, objectives, trends or projected financial results are subject to certain risks and uncertainties. Actual results may differ materially from those that are projected in such forward-looking statements. Such risks and uncertainties include those that are described in the Company’s 10-K for fiscal 2016 and in other filings with the SEC, all of which are expressly incorporated herein by reference. Please note that the financial results and expectations we discuss today are on a continuing operations basis. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are included in today’s press release. Finally, it should also be noted that unless otherwise indicated, the non-GAAP results we discuss today are reported on a 13-week and 52-week basis respectively. Moreover, our adjusted net income and adjusted earnings per share for both the fourth quarter and full fiscal year of 2017 exclude any estimated impact from the Tax Cuts and Jobs Act, which was enacted in December 2017. Any estimated impact triggered by the enactment of the Tax Cuts and Jobs Act on our financial results including the impact of rate reduction, changes in deductibility of certain items, as well as the revaluation of deferred tax liabilities are reflected in our GAAP net income and GAAP EPS results. Now, here is Tom.

Thank you, David. Good morning, everyone. We are extremely pleased to report strong fourth quarter results, driven by a robust 5.9% comparable store sales increase, which was on top of a strong 4.6% increase in fiscal 2016. We passed several significant milestones in fiscal 2017 as we surpass $6 billion in total sales, expanded our adjusted EBIT margin or operating margin by 90 basis points to 8.6% and achieved record low aged inventory and record high comparable store inventory turnover levels. We remain focused on elevating our off-price operating model and expect our initiatives to enable us to continue our favorable momentum in fiscal 2018. Regarding the fourth quarter, on a 13-week basis, operating margin expanded by 50 basis points, a solid result driven by increased merchandise margin and SG&A leverage, which combined with our overall strong sales increase of 10% drove a 22% increase in adjusted earnings per share, significantly ahead of our guidance. Turning to highlights of the fourth quarter, all on a 13-week basis, this was our 20th consecutive quarter of positive comp sales growth. Our comp sales growth was driven primarily by an increase in traffic, our 12th quarterly traffic increase for the last 14 quarters. Inventory aged 91 days and older at year end was down 26%, while comparable store inventory turnover increased 10% during the fourth quarter. We delivered a 20 basis point expansion in gross margin, while leveraging SG&A by 40 basis points, which drove a 50 basis point increase in both adjusted EBITDA margin and operating margin and adjusted earnings per share grew 22%. Our new store performance is once again a highlight of our quarterly results. Our new and non-comp stores continued to outperform contributing to incremental $79 million in sales in the fourth quarter. I want to remind everyone that…

Thanks, Tom, and good morning, everyone. Thank you for joining us today. We ended the fourth quarter by recording our 20th consecutive quarter of positive comparable store sales. In addition, we achieved strong contribution from new stores and expansion in adjusted EBIT margin, which combined delivered a 22% increase in adjusted earnings per share on a 13-week basis. Next, I will turn to a review of the income statement. Please note that the following discussion of fourth quarter financial results will be on a 13-week, non-GAAP basis unless otherwise indicated. For the purposes of this discussion, we have excluded from adjusted net income and adjusted earnings per share, any estimated impact on our fourth quarter results triggered by 2017 tax reform. For the fourth quarter, total sales increased 10%, and comparable store sales increased 5.9%, on top of last year’s strong 4.6% increase. In addition, the 53rd week added $82 million in total sales to this result bringing our Q4 total sales increase on a 14-week basis to 14.9%. For the quarter, our comparable store sales performance was driven primarily by an increase in traffic, while conversion, average unit retail and units per transaction were all up versus last year. It is worth noting that as anticipated, the eight storm damaged stores that were closed for the entire quarter reduced new and non-comp sales by approximately $25 million. As of the end of February, these eight stores were still closed. As of now, we anticipate one of these stores reopening by the end of Q1, with the balance by the end of Q3. Gross margin rate was 42%, an increase of 20 basis points versus last year driven by a higher IMU and a slightly lower markdown rate, which more than offset a higher shortage rate. We took physical inventories…

Thanks, Marc. In summary, we believe our results this quarter demonstrate the agility and increasingly strong foundation of our business model. We drove operating results above our expectation, and expect the continued implementation of our growth initiatives and store expansion plans to enable us to continue our positive performance in 2018 and beyond. We are confident in our outlook and believe in our focus on evolving our off-price model and our ability to capitalize on the rapidly changing retail landscape. This positions us well to bring more great brands, styles and value to our customers and increased value for our shareholders. Again, I’d like to thank the store, supply chain, and corporate teams for their contributions to our strong fiscal 2017 results. With that, I’d like to turn the call over to the operator to begin the question-and-answer portion of the call. Operator?

[Operator Instructions] Our first question today is coming from Ike Boruchow from Wells Fargo. Your line is now live.

Hey, good morning everyone. Great holiday and thanks for all the color on the call.

Thanks.

I guess, so, I guess the first question, Tom; you mentioned that the non-cold weather business has performed above the chain average which I guess implies the cold weather categories underperformed a bit. I guess, that’s just a little bit surprising given the favorable weather and some of the strength in cold weather categories that we’ve heard from some other retailers. Any help – just help us understand what drove the underperformance in the cold weather goods?

Yes, Ike, just to reinforce what I said previously, we are really pleased that we made tremendous progress to weathering our business. Among our strong non-colder weather businesses, it wasn’t just gift that outperformed, home, beauty, athletic apparel and footwear among many other businesses were very strong. These are businesses that tend to stick with you and become part of the foundation of our business and typically have less volatility. There has – that has long been an important objective for the company as you know, we couldn’t be more thrilled with the performance of our non-cold weather categories in the fourth quarter. Now to talk about the cold weather performance, we did exceed our plan nicely, though we’ve did planned the category down. That was a strategic decision to plan the business down, because number one, you just can’t count on the weather and number two, we have such a significant opportunity to develop our non-cold weather businesses. Ike, it’s probably fair to say that we could have done more cold weather business if we bought more upfront in earlier in the season. But will take the trade-off all day long to build the penetration of sustainable non-weather sensitive businesses and to have added with such clean inventories from an aging perspective. Maybe next year, the weather is similar, we may be less conservative, but, we are meeting our objectives and our objective is to grow our non-cold weather businesses and we feel very, very good about what we achieved in the fourth quarter and in turn, we’ll continue to reduce the volatility in our business.

Got it. Thanks so much, Tom. And then, Marc, just one for you. There is a lot of moving pieces, I think in the guidance in terms of the tax rate and the share-based comp and headwinds like the wages. Can you just walk us through the outlook and help us understand how we should think about the guidance on an apples-to-apples basis including the – basically the entire P&L, gross margin, SG&A, et cetera?

Hey, good morning, Irwin. Let me go ahead and unpack that one question with 70 parts to I hear. I think we will start with EPS on an apples-to-apples basis. You’ve got headwinds, so we’ll talk about wages and that will give you the component to the operating margin increase. So, our starting point is a 52-week 2017 EPS base of $4.37, that was I think the last table of our press release. And you saw that that excludes the benefit of tax reform in the 53rd week. So, what that does include is, $0.23 for the accounting change for share-based compensation. So, we are going to back that out and I guess, I’ll get it more into that a second, but if we back out that $0.23 benefit, you get what we refer to as a base EPS of $4.14. So, that’s one of the reasons we provided guidance before the accounting change and before tax reform of $4.71 to $4.81, which represents a growth rate of 14% to 16% on top of that $4.14 and that’s consistent with the mid-teens growth that we talked about on our Q3 call. As far as the accounting change for share-based compensation, we are really assuming the same level of underlying activity this year. Right, I mean, it’s a complex thing. We have options that vest and clearly are exercised throughout the year. We’ve got one year of good history with that. We are assuming it’s the same level of activity. But due to the tax rate change, that activity is worth less from an EPS point of view. I guess, technically it’s worth 60% of what it was in the prior year. So going forward, that accounting change for share-based compensation will be baked into our tax rate just because it’s…

Super, helpful. Thanks so much.

You got it. Take care.

Operator?

Operator, we think we are ready for the next question.

Yes, our next question is coming from Matthew Boss from JP Morgan Chase & Company. Your line is now live.

Thanks. Congrats on a nice quarter.

Thanks, Matt.

So, Tom, it sounds like your gifting strategy was a big win this fourth quarter. Could you speak to the strong performance in guests and provide any color on the underperformance in ladies apparel? That would be helpful.

Yes, I’d be happy to Matt. Okay, well, let’s start with gifts, which were a key part of our progress made in deweathering our business as I stated before. We are very pleased with this category’s performance and it really, really helps us build a less weather-sensitive foundation for the company. We are extremely pleased with both our gift assortments as well as our store execution, the strong performances across home, accessories, men’s women’s and kids as I stated previously. We still see significant growth in the category going forward. I’d add that gifts and home were big contributors to our success in the overall gift business, but there are a lot of great home growth categories, gifts certainly help drive home penetration to 14% in 2017. Between Thanksgiving and Christmas, I visited hundreds of stores and I have to say that our stores team really did a great job in terms of the overall presentation of the product within our stores and our merchants teams did an outstanding job of product selection and it was really a compelling assortments for our customers. So, let’s move to ladies apparel, moving further to ladies apparel, we are not only talking about missy sportswear, ladies apparel also includes juniors dresses, suits and apparel. Missy sportswear is the largest and most important business from ladies apparel. We are really pleased with the growth of that business, which did increase in penetration modestly versus last year driven by better and active sportswear as I mentioned before. But some of the other businesses in the ladies apparel have not been as strong. Some of our heritage businesses like dresses, suits, juniors, and intimates were not as strong as we would have liked. Would you have strategies in place to improve those businesses and these areas will be a focus for 2018. So overall, our penetration totally is apparel did dropped by approximately 100 basis points to 23% from 24%. But we are optimistic that we can reignite growth and capture market share that we believe we are old in ladies apparel given our penetration at 23% versus our peers around 30%. But Matt, we have a talented team in place in these areas with one more year of experience. We feel confident that we have the right strategies in place to have a successful 2018.

Great. And then, just a follow-up, Marc, can you update us on how your new stores are performing, maybe in terms of sales and EBIT? I think you provided us statistics last year versus the chain and I was just hoping maybe for an update?

Sure, Matt. We continue to be very pleased with the performance of our new stores, both from a sales and a profitability perspective. They continue to perform in line or better than our underwriting models. In terms of the stats that we typically give at the end of the year, at the end of 2017, our stores that were under 60,000 gross square feet ended up being 22% more productive than the chain average. That’s the first one. And then I think the other one you are referring to, Matt is, last year we gave a stat on our 2013 and 2014 cohorts in terms of how they performed in 2016 versus the chain. So we’ll go ahead and update you there. So our – this year, our 2014 and our 2015 cohorts in terms of how they operated in 2017 versus the chain, the comp sales increased for those two cohorts exceeded the chain average by 240 basis points and their EBIT margin expansion was 200 basis points higher than the chain.

Wow, that’s great. Excellent.

Paybacks still remains inside of three years, Matt.

Okay, great. Thank you.

You bet.

Thank you. Our next question today is coming from Kimberly Greenberger from Morgan Stanley. Your line is now live.

Thank you so much and I’ll add my congratulations as well for very fine quarter. Marc, my question is on the 2018 revenue guidance. We are trying to understand some of the drivers of the acceleration in total revenue growth, thinking about the 9% to 10% on a 52 to 52 week basis. Maybe you could just go through new store openings gross this year and last year. Are there any changes in timing of those store openings? And then, secondarily, maybe there is a change in closures and any other assumptions that would drive that acceleration. Thank you so much.

Yes, sure, Kimberly. You hit the nail on the head. So, 60 gross new store openings, 27 in spring, 33 in fall, and out of that 27 in spring, just to – little bit Kimberly, but in terms of what’s in our guidance right now, we’ve got 17 March openings, and five in April, five in May. So that’s the key driver and the only thing I’d mentioned to you on the – in terms of the closures to, just remember that our closures are typically very small volume stores. So they are much, much less in annual volume than the new stores that we are opening up. Those are really the drivers.

Great. Thanks so much, Marc. And my follow-up is just on the stock-based compensation that is set to EPS last year. This is obviously a super complex this year I think for us to understand. But maybe you can just talk about the factors that would drive a similar benefit in 2018 versus 2017, and if there were things that would change that would cause a headwind or tailwind what would those factors be that would cause a differential in the benefit? Thanks so much.

Yes, just a lot of moving pieces there. Everything from the number of restricted shares that vest, the number of options that vest, where the stock price is, and how people, what’s factors, all our executives go through in terms of their decision-making process in terms how and when they exercise which of course you would think has a lot to do with where the stock price is. So, a lots of moving pieces there and not something that obviously you can get all the data and to know exactly what it is. But just in terms of the overall population of shares that are vesting and when in the fact, we made some guesses in terms of what we think the stock price is going to do, we think that underlying activity will be similar to last year, but again it’s - anything could happen.

Great. Thanks, Marc.

You bet.

Thank you. Our next question today is coming from Lorraine Hutchinson from Bank of America. Your line is now live.

Thank you. Good morning.

Good morning, Lorraine.

Good morning.

I think you said, AUR was up in the fourth quarter. Can you talk about what drove that and if you expect that to continue as a comp driver in 2018?

Yes, Lorraine. So, we had AUR up in – little bit in Q3, also a little bit in Q4. So I had to tell you what the drivers were. I’d probably look to a higher, better, best penetration. I’d look to higher percent of full price sales, versus markdown sales. And I guess some of those areas, Tom called out as being very strong as you think about better sportswear, men’s, kids, athletic shoes, those are all – those are areas that typically have a higher AUR. And in terms of going forward, I’d probably tell you, last few months is probably the best indicator, but you don’t know, we did not have a strategy to move AUR from x to y. We have lots of merchandizing strategies that drove – to grow traffic and to grow comps. But, AUR is really a byproduct to that.

Yes, we really just want to focus on delivering great values. And we really don’t want to have a roadmap to grow the AUR because, if you have a roadmap and you plan it, then it happens. But our number one goal is and has been delivering great values to our customers and we really feel that that has contributed to the kind of sales performance that we been delivering.

Operator, we have time for one more question, please.

Certainly. Our final question today is coming from the line of John Kernan from Cowen and Company. Your line is now live.

Good morning everyone. Thanks for taking my questions. Congrats on a really strong holiday.

Thank you.

Thanks, John.

Just on that theme of AUR, Tom, I think you mentioned branded unit receipt penetration was up 200 basis points and better best was up 300 basis points. We can obviously see the expansion of the vendor base as we go into the stores. Can you just talk about how much further the better best can go in terms of mix and how much better – or how much higher the branded unit receipt penetration can go in terms of the mix obviously, that’s an AUR and comp driver?

Right. Well, as far as branded goes, we are on a pretty steady track of a couple hundred basis points every single year. We’ll see how that expands, we still have opportunities to add even more brands. As far as better goes, again it all depends on what kind of values we can deliver our customers, but I anticipate that that will continue to grow. We really haven’t said, okay, we wanted to be x percent over the next five years, because again, we want the value that to be the number one focus of what we do every single day. And things will happen over time. One of the things that we are very proud of is the fact that, we’ve been growing our customers who makeover $75,000 a year at a much higher level than the customers we have in our base. And I think a lot of that has to do with, A, delivering the better product and also, the way our stores are looking today. The more we improve our store, the look of our stores, as we stated, we’ve made some significant progress in 2017 and we will again in 2018 that all help generate a different customer.

Got it. Thanks and just one follow-up. You’ve had a long history of reporting upside to your guidance as you’ve been a public company. I am just wondering, the Q1 comp guidance does assume a deceleration point you were running in the fourth quarter and the two year stack trend is decelerating as well. I am just wondering, was gift giving so robust in the fourth quarter that trends have moderated a little bit in Q1 or is there is some type of conservatism here in terms of the guidance? Thanks.

John, I think you know how we guide and work typically a 2% to 3% comp guidance and the reason for that is, we are able to plan our receipt base and our expense base accordingly. And we certainly feel and we think we’ve certainly proven over time that to the extent there is more business to be had that will be all over that and have a lot of confidence in our merchandizing team to beat it if it’s there.

Thank you. We reached the end of our question and answer session. I’d like to turn the floor back over to Mr. Kingsbury for any further or closing comments.

Thanks for joining us today everybody. We look forward to speaking with you when we report first quarter results in late May. Thanks you. Have a good day.

Thank you. That does conclude today’s teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.